Working Paper: NBER ID: w18423
Authors: Alberto F. Alesina; Silvia Ardagna
Abstract: This paper offers three results. First, in line with the previous literature, we confirm that fiscal adjustments based mostly on the spending side are less likely to be reversed. Second, spending based fiscal adjustments have caused smaller recessions than tax based fiscal adjustments. Finally, certain combinations of policies have made it possible for spending based fiscal adjustments to be associated with growth in the economy even on impact rather than with a recession. Thus, expansionary fiscal adjustments are possible.
Keywords: Fiscal adjustments; Spending cuts; Tax increases; Economic growth
JEL Codes: H2; H3; H5; H6; H62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| spending-based fiscal adjustments (E62) | less likely to be reversed (Y50) |
| spending-based fiscal adjustments (E62) | smaller recessions (E65) |
| spending-based fiscal adjustments (E62) | higher GDP growth during adjustments (E20) |
| type of fiscal adjustment (E62) | economic downturn experienced (F44) |
| success of fiscal adjustments (H68) | additional policies that support economic growth (O25) |